Meta Q3 Earnings Preview: Can Zuckerberg Pull Off a Rockstar Performance Like Elon's?

We are now entering the busiest week of this earnings season, with reports lined up from five constituents of the “Magnificent 7." Alphabet (GOOG)will release its September quarter earnings on Tuesday, followed by Meta Platforms (META) and Microsoft (MSFT) the next day. Apple (AAPL) and Amazon (AMZN) will step into the confessional on Thursday, leaving only Nvidia (NVDA) to report, with those earnings due out next month.

Notably, the Nasdaq Composite ($NASX) finally hit a new record high on Friday, with a little nudge from Tesla (TSLA) - which started the earnings season for Magnificent 7 stocks with a bang. While Tesla’s revenues missed estimates, and the bottom-line beat was largely driven by higher sales of regulatory credits, the most important takeaway from the earnings call was the rosy outlook provided by CEO Elon Musk. While the billionaire used the word “guess” way too often and the delivery forecast sounded tough to achieve, he had something to please both short-term as well as long-term investors during the earnings call, making it a rockstar performance.

Meta Platforms Q3 Earnings Preview

If we set aside Nvidia, which has been in a universe of its own, Meta is the best-performing Magnificent 7 stock heading into its Q3 earnings report, while Tesla was the worst-performing.

In fact, Tesla was not only the worst-performing constituent of the coveted group, but the stock was also in the red for the year heading into its earnings. There was a lot of pessimism surrounding Tesla after the much-hyped “We, Robot” event failed to impress, especially considering the high expectations. Wall Street wasn’t too bullish on the company’s short-term outlook, either, given falling margins and negative delivery growth in the first nine months of the year.

While the Facebook parent has come off its highs, Meta will step into the Q3 confessional on a very different note compared with Tesla, and will need to justify its mammoth YTD rally - most crucially, the expansion in its valuation multiples.

Meta Q3 Earnings Preview

Analysts expect Meta to report revenues of $46.2 billion in Q3 – a YoY rise of 15.2%. Consensus estimates are slightly more bullish than Meta’s own forecast, as the company had projected Q3 revenues between $38.5 billion-$41 billion during the Q2 earnings call.

Analysts expect Meta to report earnings per share (EPS) of $5.17 – nearly 18% higher than the corresponding quarter last year. Notably, over the previous few quarters, Meta’s EPS growth was quite a bit higher than its topline growth, thanks to its aggressive cost cuts as part of its focus on “efficiency.”

However, incremental gains on that front have been withering away, due in part to the company’s higher outlays towards artificial intelligence (AI).

What to Watch During Meta’s Q3 Earnings Call

Along with the headline numbers, I will watch out for the following during Meta’s Q3 earnings call:

Guidance: While Meta’s Q4 guidance will be closely watched during the earnings call, I'll also look out for any commentary for 2025, even as Meta is unlikely to provide quantitative guidance before the Q4 call. That said, the company might provide some directionality regarding its 2025 expenses, revenues, and capex during the Q3 call, which would be crucial to follow.

AI Efforts: While some Big Tech peers like Apple and Alphabet are seen as slacking on their AI efforts, analysts view Meta as among the early gainers in the race to monetize AI. During the Q2 earnings call, Zuckerberg expressed confidence that its AI assistant would be the most used globally by the end of 2024, which he rightly said would be a “pretty big deal.” During Meta’s Q3 call, I will look forward to commentary on the company’s AI initiatives.

Metaverse and VR Headset: The losses at Meta’s Reality Labs segment, which is building the metaverse, have been increasing. At the same time, sales of virtual reality (VR) headsets have been tepid at best, and reports suggest that even Apple is suspending production of its Vision Pro. In September, Meta discontinued its Quest 2 and Quest Pro, and has reportedly dropped plans to produce a premium mixed-reality headset. During the Q3 earnings call, I will watch out for comments on the outlook for its Reality Labs segment as well as any updates to its headset strategy.

Meta Stock Forecast

Sell-side analysts are quite bullish on Meta heading into its Q3 earnings, and JPMorgan listed the stock alongside Uber (UBER) and Amazon as top picks heading into the print. 

Bank of America also maintained its bullish bias on the stock, and sees META as a top AI pick. BofA, however, is a bit circumspect about the stock, and said, “While we expect positive estimate revisions post-print, expectations for a beat and higher estimates are high, and management could try to keep '25 estimates in check (via commentary on headwinds, investments, or conservatism in 4Q revenue outlook), adding some near-term volatility risk.”

Bernstein also maintained its “overweight” rating on Meta, while raising its target price to $675. 

Overall, Meta has received a consensus rating of “Strong Buy” from the 48 analysts actively covering the stock. Its mean target price of $619.28 is just about 8% higher than Friday's closing price, while the Street-high target price of $811 represents an upside potential of over 41%.

Is Meta Stock a Buy Ahead of Q3 Earnings?

Meta Platforms currently trades at a next-12 months (NTM) price-to-earnings (PE) multiple of 25.2x. The multiples bottomed at 12.3x in November 2022 amid the slide in Meta stock, and have since doubled, rising above historical averages.

Some of the expansion in Meta’s valuation multiples is due to what looks like a successful AI pivot. Also, the company’s PE multiple would look a lot more grounded if not for the billions of dollars in losses that its Reality Labs segment is posting every quarter.

Markets will expect Meta to provide upbeat commentary about its short-term AI plans, as well as a long-term pivot to the metaverse. In short, Zuckerberg might need to deliver a rockstar kind of performance, a la Musk, during the Q3 earnings. He has done so in the past with his “year of efficiency,” and with that initiative now having lived its course, the company needs a new narrative and story to sell.

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On the date of publication, Mohit Oberoi had a position in: META , MSFT , GOOG , AAPL , AMZN , NVDA , TSLA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.